ARA Asset Management together with the property arm of British Columbia Investment Management today announced their acquisition of a Melbourne office development valued at A$330 million ($218 million), confirming a Mingtiandi report from earlier this month.
In a joint statement, the Warburg Pincus-backed asset manager and QuadReal Property Group said that their purchase of the project at 200 Victoria Parade in the capital of the Australian state of Victoria marks the first investment from a value-add joint venture between the two companies targeting office and logistics assets in Sydney and Melbourne.
The ARA-Quadreal team is investing in the development project on a fund-through basis, with payments to be made as work progresses and a balloon sum due on completion, which is expected in the third quarter of 2022, according to ARA.
Teaming Up to Break into the Melbourne Market
“ARA is delighted to partner with QuadReal, one of the world’s most sophisticated real estate investment houses,” said David Blight, CEO of ARA Australia. “The Victoria Parade project represents an exciting opportunity to secure a strategic foothold in a prestigious location, and we look forward to undertaking many more projects together.”
The joint venture between John Lim’s ARA and the Canadian pension fund manager has closed its first deal in Australia eight months after Melbourne-based development partners Golden Age and Time & Place engaged JLL to market 200 Victoria Parade to potential investors after deciding not to proceed with the commercial development. JLL also in 2018 advised ARA and Quadreal on the formation of the value-add Australia joint venture, according to sources at the property consultancy.
ARA declined to disclose the financial terms of the Victoria Parade investment or the equity arrangements in the joint venture.
Targeting Government and Corporate Tenants
Victoria Parade’s 283,000 square feet (26,292 square metres) of grade A office space is parcelled out across 27,000 square foot floorplates, which ARA said are designed for government and corporate tenants with large space requirements.
Under the developer’s current designs, which are available online, the eleven-storey office complex includes ground floor retail, a green lobby, and sky terraces.
Located at the northwestern corner of Melbourne’s Fitzroy Gardens, the project is within ten minutes of the boundary of the city’s Hoddle Grid central business district where Rio Tinto, BHP, and gaming group Crown have their corporate headquarters, while Parliament House on Spring Street is a five minute walk away.
Buying into a Tightening Office Market
The ARA–QuadReal JV is buying into the Melbourne office market as vacancy for prime office space in the city hit an 11-year low of 1.8 percent in the last quarter of 2019, making it one of the tightest office markets in the world according to JLL.
QuadReal has targetted Melbourne as among 23 metro areas worldwide where it is focussing its investment efforts.
“Melbourne is a key focal point of our global cities strategy,” said Peter Kim, QuadReal’s managing director of Asia. “And our Victoria Parade investment represents a lot of what we like about this market — from the asset’s uniquely large floorplates to the best in class environmental sustainability initiatives that we have planned for the building.”
To set these green credentials in stone, the JV team is targeting a 5.5 star rating under the Australia’s NABERS initiative – which measures a building’s carbon footprint – and a top-starred certification from the Green Building Council of Australia.
Piling into the Aussie Market
The acquisition of 200 Victoria Parade comes as investors continue to crowd into Australia’s office property market after the sector attracted A$23.4 billion in fresh capital last year – up 32 percent from 2018 and the highest on record, according to CBRE.
In line with rising investment, office rents are on the upswing in the JV’s pair of target cities, with net face rents for Sydney climbing by 2.1 percent quarterly in the last three months of 2019, while in Melbourne they rose 1.6 percent during the same period, according to CBRE.
The Aussie logistics sector – which will also fall within the joint venture’s strategy – has also become a favourite of investors from around Asia as e-commerce continues to boost demand for warehouses.
Just last month, GIC spent A$366.1 million to acquire an additional 24 percent stake in Dexus Australian Logistics Trust (DALT), which increased GIC’s interest in the warehouse investment vehicle to 49 percent.
Just under a month before that transaction was revealed, Hong Kong-listed logistics specialist ESR announced an A$138 million fund offering investors access to a set of its Australian business parks and other industrial assets.
One month prior to that announcement, the Warburg Pincus-backed company established a A$350 million mandate with China Merchants Capital to invest in logistics assets Down Under.